AIC Mines (ASX:A1M) Q1 2027 Earnings Call

0:00 I'd now like to hand the conference over to Mr. Aaron Colloran, non-executive chairman. Please go ahead.

0:07 Thank you, Darcy. I'm joined here in our Sydney office by our CEO, Clint Duncan, our CFO, John Callagher, our COO, Tim Benfield, and our business development manager and invest relations manager, Duncan Bristow. It's unusual, I know, for a non-executive chairman to be presenting a quarterly call, but I'm sure our listeners will understand with Clint having only been in the seat for three weeks and me having been the CEO for the September quarter, the responsibility for delivering this result sits with me. The September quarter was a pivotal quarter. It was a quarter where we set ourselves up for short-term, medium-term and long-term success. For the short term, we produced 3,072 tonnes of copper and 1,562 ounces of gold in concentrates and generated a record quarterly net mine cash flow of $33.4 million. When we bought this asset five years ago, I wouldn't have believed we could do that in three months. I think it took us two years to do that.

1:02 It beat our previous record of $27.7 million set in the March 2026 quarter and underpins our growth spending. For the medium term, we completed the JS3 ventilation shaft and second means of egress at Jericho, allowing us to start stoping at Jolly ahead of schedule There's a photo of the first production blast at Jericho in the quarterly report to show you just how nicely it came out. There's also a cross-section of the stoping panel to show you how well it behaved. Take a look at those pictures. They definitely support the adage that a picture tells a thousand words. Also, for the medium term, we started commissioning the on-budget 1.1 million tonne per annum plant expansion ahead of schedule. For the long term, We received encouraging exploration results from Brumby, Iris, Eloise South and Oregrande. We announced the acquisition of the Mount Cuthbert Copper Project, a deal that we've been working on for almost four years, a project that we have long coveted, a project that we consider to be the most prospective undeveloped copper project in the Mount Isaak-Longcurry region.

2:06 We entered into a $70 million placement agreement with Hawke's Point to support the Mount Cuthbert acquisition and ensure that our balance sheet is absolutely bulletproof over the next two years as we drill baby drill at the Mount Cuthbert project. And we appointed a new CEO, Clint Duncan, and new NED, Mark LeMessurier, bringing in operational expertise and experience for the production ramp-up, operational improvement and inorganic growth that we have ahead of us. Now, to run through some details, Aloe's production was a bit softer than we had forecast due to a delayed access to higher grade material in the Aloe's deeps and lens 6 deposits due to a seismic event and earlier than planned processing plant shutdowns for cut over work to connect new equipment.

2:54 The ore production shortfall from the deeps and lens 6 was made up by early access to Jericho ore from the Jolly Chute, albeit at a lower grade than deeps and lens 6 ore. It was obviously great to have the Jericho ore available, already proving the benefits of having two mines. We are back in the deeps now, and the high-grade ore that we should have seen in September, we are seeing now. I saw it yesterday, in fact. If you have the quarterly report in front of you, take a look at chart one on page four of the quarterly, the monthly chart of ore by source and TKM. This is a chart... Analysts will recall, and this is a chart that a couple of quarters ago I asked analysts if we could remove it going forward, and all the analysts responded, no, it's useful. I now have to admit you were right.

3:42 It's rare to hear that from me. It is a very useful chart. If you look at September monthly reproduction, you'll see how much JOLI helped out. The chart shows that the December monthly production forecast isn't as big a jump as it first looks. It's roughly what we achieved at Eloise in August and at Jericho in September, just occurring in the same month, December. So September, looking for a silver lining, has shown us that we can achieve the December quarter ramp-up schedule. We've effectively already done it. The other issue in the quarter, the processing plant shutdowns for cutover work, were earlier than planned because the expansion commissioning is ahead of schedule. These shutdowns were planned for October, not September. So although they cost us tons in September, we should get the benefits in the December quarter. So again, something of a silver lining.

4:32 We're ahead of schedule. The Aloys AISC of $4.86 a pound copper sold and AIC of $5.01 per pound copper sold were better than last quarter. but still above where we would have liked them. The higher costs were mainly a result of the lower grade ore treated, the sale of higher cost concentrate inventory built up during the quarter and higher diesel prices late in the quarter. I'll now hand over to our CFO, John Callagher, to take you through the financial outcomes of the quarter.

5:04 Thanks, Aaron. Eloise generated $69.6 million in metal sales post-TCRC deductions during the quarter, a very strong result. There was a further $8 million in metal sales related to Jericho in the quarter. As advised in the June quarter, these sales sit within the Jericho net contribution of $5.8 million rather than the revenue line, reflecting that Jericho remains in the development phase. We remain on track for Jericho to be treated as a commercial operation from January 27 onwards. Eloise Mine operating costs of $28.3 million are down on the June quarter. This reflects the overall reduction in Eloise development metres, with Eloise's second jumbo being moved to Jericho. Diesel costs were also down on the June quarter, although volatility remains and landed diesel costs increased above the guidance range at the end of the quarter.

5:57 25,000 tonnes of Jericho oil was processed and 360 tonnes of copper sold during the quarter. Jericho sales volumes are not included in the Eloise AISC and AIC metrics, given they relate to development oil, and the related mining costs are capitalised as part of the expansion project. Commercial mining is expected to commence at Jericho in January 2027, at which point Jericho's operating results will be consolidated with those of Eloise. Capital expenditure warrants some explanation in respect of the September quarter costs against the half one FY27 guidance. Underground mine development spend is tracking marginally above half one guidance on a run rate basis. This reflects a higher proportion of Eloise mining activities being allocated to capital, while the September quarter was impacted by close to $1 million of rehab costs following the seismic event.

6:49 Long-term mine development is marginally above guidance for the same reason as described above. Jericho Access Drive and mine development is circa $1 million above guidance, with the small overspend relating to the wrap-up of JS3. Otherwise, this remains on track. Yellow East expansion capital is now largely spent with only $1 million remaining. Aggregate spend is within $1 million of guidance. That's an impressive result. Non-plan infrastructure expenditure in the September quarter spend of $5 million compares with half-won guidance of $8 million. This is expected to be substantially complete in the December quarter in line with guidance. Towing dam and water storage spend of $4.2 million compares to half-won $10 million and overall this remains on track. The net Jericho contribution is trending ahead of guidance, driven by strong copper prices in the first quarter.

7:44 Exploration, slightly ahead of guidance on a run rate basis, but this is partly seasonal. We spend due to fall in the second quarter. There is some budget or above budget activity here associated with drilling at Brumby. Working capital unfavorable of $12 million in the quarter. This is largely driven by the increase in accounts receivable during the quarter, which reflects the increase in sales volumes in September 26 relative to June 26. So in the September quarter, we collected cash on those low June 26 sales volumes. I'll now hand back to Aaron to conclude the review.

8:20 Thanks, John. That effectively concludes review, so I'll ask the operator to open the line for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Daniel Morgan from Baron Joey. Please go ahead.

8:48 Hi, Aaron and team. My question is on expiration. I mean, there's been quite a bit of expiration results within the quarter. Just wondering if I can understand how you interpret these results with the latest view of prioritisation of targets and then just how you look at that versus Mount Cuthbert. Thank you.

9:10 Yeah, it's a good question. It's actually not an easy question as you'd expect. If I take you back to a little bit the background or the strategy of our regional exploration, we're looking for something transformational. As you know, at Eloise now, at the 1.1, let alone 1.5 million tonne per annum processing rate, we've got 20 years' worth of resources. So we're not out looking for 1.5, 2% deposits. We've got them. We've got plenty of them. So what we need, you know, is either something that's materially larger, you know, something as large as Jericho that tells us, whoops, you know, we got 1.5 wrong, we need a 3 million, you know, we need a 3 million tonne prana plant, or, you know, something that's 3 or 4%, you know, like Eloise was, or Eloise is when it's selectively mined, like it was mined when longhole stoping in the upper levels, which would displace all. So, What that means, you know, in terms of our exploration strategy, is if we hit something that looks nice, you know, five metres at one and a half percent, we will drill it, but we'll move on to try to find something that is materially better than what we have.

10:38 Because if we're wandering around the bush with a drill rig and we find something similar to what we already have, it's not going to displace that and it's not going to change our outlook. So we have to find something materially larger, materially better. So that's why you'll see what I thought were well worth highlighting those results, the two copper results, the two gold results. Ordinarily, you'd be pretty excited about those. But the one we'll clearly then go back to, Dan, and there's no surprise, we have a rig there right now, is Brumby Brumby clearly looks as though maybe I'm getting a bit carried away I have to be careful I'm an explorationist at heart it is one hole it could end up a one hole wonder but from what we've seen if there's another project in the region it could be Brumby so we'll go back there and Iris Iris has the strike extent and similarities with Jericho that put it ahead of the pack.

11:40 But some of these other things, we keep them in the arsenal, but we won't be going back to them urgently because they don't look like they'll displace what we've got at Eloise. So that's Eloise. Now, when you turn to Mount Cuthbert, that thing is an absolute lolly shop. And so we are sport for choice. and so you'll see that's exactly why we did the placement of Hawke's Point, $70 million there to pay for and to, like I said in the intro, drill baby drill. There is nothing stopping us drilling 60,000 metres as quickly as humanly possible out there and that won't impact. So that won't impact our exploration budget at Eloise Regional or at Brumby.

12:27 That's deliberate. So maybe if the question you're asking is, you know, how do we decide, we can't. We love all these children, all equally. They're all wonderful children. And so we've raised enough money to drill a wall of them. I hope that answers the question, Dan.

12:45 No, that's fantastic, Carla. And just wondering what needs to be done to fully close off, you know, your two projects in train. in the December quarter? Like what needs to be done from here? What are the remaining risks, if any? Can you highlight to us? Thank you.

13:05 So you're referring to Jericho ramp up and Eloise expansion commissioning?

13:11 Yes, of course, the plant and Jericho.

13:14 Yeah, yeah, yeah, yeah. So look, nothing at Jericho. As I sort of alluded to, we did it in September. So I don't see why we can't do it in October, November and December. You know, we've been mining development ores for some time at Jericho. So metallurgically and all those sort of things we're happy with. Now, stoping, you know, and so development ore, as we've shown in the past, it's where it was supposed to be and it's the grade it was supposed to be. um now the stope um hence you know I put those uh the photo as well as the um cross-section in the in the um quarterly so you can get that comfort that we have um that um you know touch wood we're literally business as usual at scale at the 37,000 tons per month that we initially want to ramp up to you know we've done it uh albeit over a short range um So we're not concerned with Jericho.

14:19 We're doing that. It'll ramp up easily now in line, in line with the commissioning. And there's plenty of ore on the ROM. It'll be at low grade, but plenty of ore on the ROM. So as soon as that big crusher and big mill get moving, we'll ramp up. So what do we have to do? We're in that fun part of putting rocks through things and... and seeing how it works. We've turned them on. It all worked. We put water through it. A few bits of water came out the wrong spot. We've run around with the solastic, fixed that up, and now we're putting rocks through. Slowly going through that process, rocks in the box, all done well, and we continue on.

15:06 So that's the next four to eight to even 12 weeks. That's what this quarter's all about. From what we can see at the moment, it's gremlins, Dan. This is not greenfield. It's not unusual technology. It's not big. It's big for us. We think it's an amazing size, but it's a one and a half million tonne per annum crusher and ball mill. Nothing particularly complicated, but there's always gremlins and we're working through those little bits and pieces ourselves and with Grez literally as we speak.

15:54 As John noted, we're within a million dollars of that EPCM figure. That's bloody sensational. We're two weeks ahead of schedule. That's plus or minus. If we were two weeks behind, that wouldn't bother me, so I don't want to get excited about being two weeks ahead. I think plus or minus four weeks on these things is very, very impressive. So I'm happy. I'm very happy with where we are, Dan.

16:25 Yeah, absolutely. What a signature moment for you and your team. I agree. Thanks. Thank you. Your next question comes from Daniel Roden from Jefferies. Please go ahead.

16:42 Thanks for having me on. Congratulations on the good quarter. It's a very pivotal moment for you guys. Congratulations on getting the delivery there. That probably leads into my first question as well. How do we think about the December quarter and through to the second half, FY27, if I'm reverse engineering your December quarter guidance, it's defying something in the order of, you know, to low 200s to mid 200,000 tonnes versus the, you know, 173 in September. Yeah, like, and I know you've spoken to how the, you know, commissioning is going at the moment, but, like, you know, is that, I guess, what's your confidence in delivering, you know, that target and, you know, I guess, where are some of the elements that you might be worried that that, you know...

17:41 if there was risk in that profile?

17:43 Dan, you know, our confidence is good, you know, for those reasons, you know, I effectively just outlined at Dan Morgan, you know, on the Jericho ramp up, you know, the alloys expansion commissioning, you know, so we're, you know, we're confident, very confident, you know, I don't know how you judge confidence, but but the point you made on some of the maths, do the calc, yes, the September quarter puts us behind as we're behind at the first quarter. and it's not going to be easy to make up ground. Look, I did talk about, you know, the early cutover hurt us in September.

18:30 It will help us in October. You know, the grade we lost from the deeps in September will catch in October, sure. But, you know, if we were, you know, 5% ahead of our guidance at this point, I would tell you we're extremely confident. We're behind, so it's hard work ahead of us. We're confident. We have a plan in place. You can see the guidance. You can do the maths from the numbers that we've given you. The H1, we bravely gave H1 and H2 guidance this year, and now we've given you December quarter guidance. You'll see that... midpoint is what we're targeting not top end so my suggestion to you Dan is that midpoint is where we're heading but we'll be doing everything you can you know us and if grade goes our way we will be doing everything we can to do better than midpoint and get back towards top end guidance but you know, we're only one quarter into a game of, you know, four quarters, boom, boom.

19:46 We'll, at this point, we'd say we're confident of midpoint. I hope that answers your question. I hope you don't see that as negative. Yeah, that's just the normal sort of conservatism and, you know, sensibleness of AIC.

20:04 No, no, that's great. I like asking the open-ended questions because you're talking. Yeah. Now, just, I guess, leading on from that, like, you know, there was a, you know, I guess the CapEx associated with Jericho is, you know, getting pretty high for the quarter. I'm just trying to understand, like, it sounds like that's all relatively done, but is there any... you know I guess residual capex that we would expect in the December quarter and probably where I'm going with that is you're going to see you know you're kind of at the start of that journey of a material inflection in you know primary pop-up production and that's going to commence over you know from next quarter through to the end of FY27 and you've really theoretically you're going to start dropping off a lot of that cap expense so a lot of that's just you know translating into free cash flow back onto the balance sheet you know I guess is there anything any, you know, legacy or, you know, topics that we should be aware of kind of over the next year or two?

21:03 Yes and no. I would, I'll just quickly answer it, John, sorry, and if you can tell me if I'm wrong, but, you know, as John noted in his commentary for Jericho, JS3, ventilation shaft, second means of egress, you know, a million dollars over, you know, But otherwise, so that's why we wanted to sort of pull that out for you. That's why the Jericho CapEx is over budget. It's that piece. It's not as though development is costing us more or we underestimate it or any of those sort of things. So while we're over by a million dollars, John also noted we're now on track. And so what that on track means is the other development. And so, you know, sure...

21:53 development doesn't we're spending a lot of money on development this year and next year with the Matilda Access Drive so you've got those numbers that is in our guidance that doesn't really fall away because we're rushing We're racing to Matilda to get the better tons, the better productivity out of that ore body as quickly as we can for the 1.5 million ton per annum scenario. Is that clear, Dan? Yeah, yeah, no, no, Christopher.

22:31 Yeah. Yeah, it's more... It's probably more thematic of where you're going to be in 12 months' time.

22:42 Oh, yeah. Raining cats. In 12 months, I'm raining cats. It'll be so easy to run. I can't believe the ease that I'm leaving behind. I'm glad you said that.

22:56 Thank you, Dan. Maybe just a final quick one for me, but coming into December, weather readiness, are you thinking about how you build up a sales buffer? It's the new, I guess, Jericho integration and new plant expansions, and they throw some spanners in the works in terms of how you'll have historically prepared for, I guess, wet season and some access cut-offs, anything like that. Any risk mitigations there?

23:26 Well... Yeah, the wet season does worry us, as does everybody in the region. You know, we've had two nasty ones in a row. Maybe we're due for a nice one, for a fair one. Certainly hasn't been dealt in the past two years. So, yeah, we are sufficiently concerned, Dan. And, yep, we've got pumping and piping and all sorts ready to go in every direction. and putting in a tailings dam raise at the moment, as you see, mentioned in the quarterly, and an additional water dam. So work is underway. But...

24:12 Yeah, that was... Yeah, sorry. Thank you, Tim. And the other important piece is we now... We effectively have moved. We're moving. We've moved from our solar drying... to a filter press. That filter press is dropping concentrate on the ground at roughly 8% moisture content, ready to go, like literally ready to go straight in the back of a truck. every other copper concentrate producer who's dialing into this call thinking, God, these guys are a bit back in the 1950s. We've just come into the 2000s and it's wonderful. We're producing concentrate that we can truck immediately and we will. So the whole solar drying issues that we've had in the past two wet seasons, they go away to some degree, but road closures and pad closures at Mount Isa, they don't go away.

25:09 but that's a large part of that problem has gone away, has already gone away.

25:19 Awesome. I can't wait until you guys catch up to the 2020s, but that'll be fun. Thanks. We like to keep it simple. Cheers. Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Shane Laplastria, a private investor. Please go ahead.

25:44 Hi, Aaron. My question is about exploration drilling. And away from Eloise Jericho, where will drilling be happening before the onset of the wet season?

26:01 Yeah, so simply Brumby right now. and we'll be hard up against it. So we've got a rig at Jericho, a rig at Brumby and that may well be all we get done. We won't start at Mount Cuthbert this year. We'll be ready to start in earnest at the close of the wet season. So ahead of us, so that's not to say you haven't got unfortunately that's not to say there's not some good results to look forward to when you get a chance and you go through the quarterly you'll see we actually did a lot of drilling in the quarter just gone and we owe you the labs owe us a lot of results so we've got plenty of results to come all going well that they're good but because I don't know if you're aware or many listeners are aware but a lab Rigs are hard to get in Queensland at the moment and lab turnaround has really slowed down.

27:09 We're almost back to peak times in Queensland, in North Queensland for some reason. A lot of activity sounds like it's more busy up there than it is in WA, which is normally the bellwether. So Shane, that's sort of two rigs running up until end of November, beginning of December.

27:30 Right, and would it be fair to say that the second program at Brumby, is that proving to be a little larger than perhaps initially allowed for?

27:47 Well, in terms of budget, yes. I think you'll see in the commentary, the finance commentary for Johnny notes that We've moved an extra half million dollars. It's not big, but half a million dollars gated across into Brumby. And that's the program we've got out there now. So four or five holes, all fairly deep holes. We're about a third of the way through it.

28:21 Great. So there's the initial discovery hole, the other two, and this second program. Correct. Those four to five holes.

28:35 Yeah, correct. So there's nothing at the lab yet. So that's a good three months away, unfortunately, with the turnarounds we're seeing at the moment.

28:46 Right, right. Okay, great. Thank you.

28:50 No worries. Thanks, Shane. Thank you. There are no further questions at this time. I'll now hand back to Aaron for any closing remarks.

29:00 Thanks, Darcy. I'm very happy to be handing over a great company in great condition to Clint, a company that is set up for short-term, medium-term and long-term success. We're on the final straight to completing the expansion of the Eloise plant. The plant commissioning has commenced. The ore body is performing well. The copper price is strong. We've got an exciting few months ahead of us. Beyond that, Mount Cuthbert acquisition advances our ambition to build the next Australian mid-tier copper producer by adding a potential second production centre in northwest Queensland. You cannot own too many AIC Mines shares. Just ask Hawkes Point. Thank you for dialling in. That concludes the call. That does conclude our conference for today.

29:45 Thank you for participating. You may now disconnect.